KEY Newsletter – Federal Rescheduling April 2026

Federal Cannabis Rescheduling is Here

The DOJ signed the order. Schedule I is history for state-licensed medical cannabis – and the broader process is now on a court-mandated clock.

To Our Community,

This is a moment we have been working towards for years. This week, Acting Attorney General Todd Blanche signed an order rescheduling state-licensed medical cannabis from Schedule I to Schedule III under the Controlled Substances Act — the most significant federal cannabis policy shift in decades.

Let us be direct about what this means: the federal government has formally acknowledged that cannabis has accepted medical use. After fifty years of treating cannabis as equivalent to heroin, the United States government has conceded the point that patients, physicians, researchers, and our industry have been making all along.

The order takes a two-track approach. Immediate rescheduling applies to all FDA-approved cannabis products and all cannabis products regulated under a qualifying state medical license, effective now. Simultaneously, DOJ has launched an expedited DEA hearing process beginning June 29, with a hard deadline of July 15, 2026, to consider full, formal rescheduling across the board. This is not a promise or a proposal. It is a signed order with a timetable.

What This Means for the Industry Right Now: 

• 280E Relief.  Section 280E of the tax code — which has barred cannabis businesses from deducting ordinary expenses — applies only to Schedule I and II substances. Rescheduling to Schedule III removes that prohibition. Industry analysts estimate cannabis operators have paid approximately $15 billion in excess 280E taxes since 2018, with some operators carrying effective tax rates above 70%. That burden is now lifting. The IRS will need to issue formal guidance, but the direction is clear.
• Banking & Capital Access.  While SAFE Banking has not yet passed, rescheduling improves the risk calculus for financial institutions currently reluctant to serve cannabis operators. Improved access to banking and credit is a near-term downstream benefit as compliance departments reassess their exposure.
• Research Acceleration.  Schedule III carries substantially less burdensome DEA research requirements than Schedule I. Universities and hospitals that have long wanted to study cannabis but feared losing federal funding now have a clearer path forward. A stronger evidence base helps the entire industry.
• Operator Cash Flow.  Removing 280E frees up capital that operators have been forced to hand to the IRS instead of investing in growth, wages, and facilities. The improved cash flow dynamics are immediate and structural — not cyclical.

The Road Ahead

We want to be clear-eyed with you about what today is and what it is not. This is not federal legalization. Cannabis remains a controlled substance. Recreational and adult-use markets are not addressed by today’s order, and the regulatory framework governing interstate commerce, physician prescribing, and the integration of a multi-billion-dollar industry into federal law remains to be written. That is the next chapter, and it will take time.

The expedited hearing process, concluding by July 15, represents the formal rulemaking pathway that will cement today’s order into permanent federal regulation. There will be legal challenges; Smart Approaches to Marijuana has already signaled its intent to litigate. We expect turbulence. But the trajectory, and critically the political will behind it, is unambiguous. The Trump administration has moved with purpose here, and the industry has bipartisan momentum that did not exist when this industry first started.

The adult-use side of this industry, which represents the majority of current state-legal market volume, remains the larger regulatory prize. We are watching closely as signals develop around SAFE Banking, the CLIMB Act, interstate commerce frameworks, and congressional appetite for broader reform. Rescheduling creates the credibility and political momentum that makes those conversations easier, not harder.

Timeline to Watch:

• April 23^rd, 2026: Schedule III – Effective Immediately
  • AG Blanche signs order. State-licensed medical and FDA-approved cannabis moves to Schedule III today.
• June 29^th, 2026: DEA Expediated Hearing Begins
  • Formal rulemaking process opens. Structured to finalize comprehensive Schedule III classification.
• July 15^th, 2026: Hearing Deadline
  • Hard deadline for DEA hearing process. Final rule publication in Federal Register to follow, effective 30–90 days thereafter.
• 2026 – 2027: Broader Reform
  • SAFE Banking, the CLIMB Act, interstate commerce, and adult-use frameworks remain the next major regulatory frontier. Today builds the foundation for tomorrow’s reform.

We have spent years investing in this industry with the conviction that federal policy would eventually catch up to state-level reality. Today, it did meaningfully, and with a timetable. There is more work ahead on the adult-use side of the ledger, and we will keep you informed at every step. But today, we are proud of the operators we have backed, the patience our investors have shown, and the direction this industry is moving.

The timing of this announcement could not be better for KEY Investment Partners, as we recently closed our second Private Equity fund, KEY Investment Partners Fund II L.P. We remain one of the only asset management firms actively deploying into new cannabis investments and have a strong pipeline of new investments / follow-ons in our existing portfolio.

We intend to take advantage of the distressed operators and attractive valuations for cannabis companies in the coming quarters, before institutional capital reenters the industry and valuation multiples grow.

If you are an accredited investor interested in seeing our deal flow during this highly attractive buyside environment, please reach out to contact@keyinvestmentpartners.com.